New Book by Bill Patry -- who is back to blogging

by Paul Levy

Bill Patry has just published an intellectually provocative and useful polemic, Moral Panics and the Copyright Wars, that urges public attention to excessive incursions on the public domain undertaken at the behest of copyright holders through what Patry calls “The Copyright Wars.”  Patry is the author of two significant copyright treatises, Patry on Copyright and The Fair Use Privilege in Copyright Law, as well as the very well-received Patry Copyright Blog that he suspended last year.

Patry points out that although there is always a very powerful constituency for the expansion of copyright protection, and it is easy to identify those who will gain economically from such expansion and hence whose wrath will be incurred by politicians who refuse to go along, the constituency for protecting the interests of consumers and other users who benefit as works pass into the public domain tends to be more diffuse, and the victims of incursions into the public domain are far less likely to punish the elected officials who hurt them.  Yet the evidence supporting the proposition that augmentation of copyright protection is needed to create incentives for the production of creative works – the supposed justification for copyright and patent protection found in the Constitution’s so-called “intellectual property” clause – is really quite thin.  Indeed, evidence suggests that the expansions protect industries that exploit authors, not the authors themselves.

Patry draws on his own lengthy experience in the legislative branch, dealing with such masterful lobbyists as Jack Valenti, to point out the effectiveness of the copyright-expansion interests in manipulating publc attitudes.  For example, he argues that the very use of the term intellectual “property” unduly loads the dice in the public mind because decision-makers often ignore the ways in which copyright is solely the product of legislation, much more so than real or personal property that necessarily entail exclusive possession and enjoyment at any one time.

Not all of what Patry says is entirely persuasive, but the book is a good read and worth reading.  There is a blog devoted to the issues raised in the book, thus far consisting largely of back and forth between Patry and blogger Ben Sheffner.  Patry has also recently posted to his main blog, the Patry Copyright Blog -- we may hope that he will resume that useful point of discussion of recent developments in copyright law.

Kurt Eggert Article on Securitization

Kurt Eggert of Chapman has written The Great Collapse: How Securitization Caused the Subprime Meltdown, 41 Conecticut Law Review.  Here's the abstract:

This Article builds on existing criticism of securitizing subprime loans and argues that one of the primary causes of the subprime meltdown and the resulting economic collapse was the structure of securitization as applied to subprime and other non-prime residential loans, along with the resecuritization of the resulting mortgage-backed securities. Securitization weakened underwriting by discouraging originators from gathering “soft information” about the likelihood of borrower default and instead caused loan originators and other market participants to focus almost exclusively on such “hard information” as FICO scores and loan to value ratios. At each stage of the loan and securitization process, securitization encouraged market participants to push risk to the very edge of what the applicable market standards would tolerate, to make the largest, riskiest loans that could be sold on Wall Street, to bundle them using the fewest credit enhancements rating agencies would permit, and then to repeat the securitization process with many of the lower-rated mortgage-backed securities that resulted. Loan originators could profit by bargaining down the due diligence of other market participants and so reduce their own underwriting standards. Securitization also created a business model for subprime lenders whereby they could “profitably fail.” Thinly capitalized subprime lenders could generate large numbers of loans likely to default, along with substantial profits for the executives who directed them, and then simply exit the market when they predictably lost their access to the securitization pipeline.

Bank of America stops arbitration—Another problem with consumer arbitration

You may have read that Bank of America  has decided to stop requiring its customers to arbitrate disputes. Many appluaded this as a victory for consumers, which it is. It also is another example of why consumer arbitration must be prohibited. Bank of America’s decision demonstrates the real problem with consumer arbitration—it is completely controlled by the business. For whatever reason, Bank of America wanted to stop arbitration, and it did. If its customers wanted to continue to arbitrate, they are ou of luck. And no matter how many consumers wanted to stop arbitration, without the bank’s consent, they could not. Talk about a one-sided agreement.

Perhaps, Bank of America felt that with the demise of NAF and AAA as arbitration forums, it would be better to not arbitrate and run the risk that whatever arbitration forum they choose would suffer the same fate, and leave the validity of decisions in jeopardy. Or, maybe the cost of litigating arbitration clauses was too high and the bank wanted a cooling-off period. Or maybe the bank just thought it would be better to litigate. The point is, it doesn’t matter. Regardless of why Bank of America wanted to stop arbitrating,  it had the absolute, unfettered right to change the terms of its contracts with its customers, and terminate the arbitration agreement. Of course, as soon as Bank of America changes its mind, and decides to again arbitrate, all it must do is send another form notice to all of its customers who then be bound by its decision. Not exactly a two-way street.
        The legal theory supporting arbitration is that an arbitration agreement is a voluntary decision of two parties to a contract to waive the right to sue and substitute a binding decision of an arbitrator. The conduct of Bank of America in unilaterally terminating the arbitration agreement it had entered into with its customers shows the true “voluntary” nature of consumer arbitration.  Arbitration is impose or withdrawn at the whim of the business. Hopefully Congress will enact the Arbitration Fairness Act before Bank of America has a chance to change its mind and re-impose mandatory, pre-dispute binding arbitration on all of its customers.

Will the New Disclosure Date for Mortgage Terms Lead to Delays?

Bob Tedeschi has an interesting column in today's Times about the impact of the new rule that obliges lenders to provide the final TILA disclosures for mortgages three days before closing, as opposed to the old rule that they could be provided at the closing itself.  The headline, New Law May Cause Delays for Borrowers, tells the story.  The reason for the delays?  If interest rates change between the time of the disclosure and the closing, the disclosures have to be made all over again, which would start the clock running again. See, e.g., Statement of Jack M. Guttentag, University of Penn. Wharton School of Business, at the Federal Reserve Board Public Hearing, Building Sustainable Homeownership: Responsible Lending and Informed Consumer Choice 135 (June  9, 2006) (“the prices in this market are volatile. They change every day.”). Of course, lenders could go ahead with the closing at the rates that were previously disclosed.

Judges and Credit Card Cases

by Jeff Sovern

Suppose you're a judge presiding over cases in which debt buyers--who have bought credit card debt from credit card companies or, often, other debt buyers--sue the credit card holders for the amounts due on the credit card.  You know that virtually no debt buyers can prove their cases (indeed, I'm told that often the contract under which the debt buyer purchased the debt does not oblige the credit card company to provide the underlying documentation needed to prove the debt, or obliges the credit card company to provide such documentation for only a limited number of the debts).  The debt buyers are like poker players bluffing with weak hands.  Consequently, if the cases go to trial, the debt buyer will lose.  You could insist that the cases go to trial.  But that would clog your court up with trials.  In addition, you believe that most of the consumers did incur debts on the credit cards on which they're now being sued, so that they would get a windfall if they win outright.  Moreover, if all judges insisted on trials in such circumstances, consumer debts would become worth even less, which means that credit card issuers would have an even harder time recouping their losses, and that might increase the cost of borrowing or reduce access to credit, or both.  Alternatively, debt buyers might insist on buying the documentation, and that the credit card companies supply the witnesses needed to prove their cases, which would again increase the cost to credit card companies.  So there are long run costs to that approach.  Many of these cases terminate in settlements.  So you could push the parties to settle.  But what kind of settlement is fair?  Often the final charges on the card exceed by a large margin the cost of the items that the consumer initially charged, because of the various penalty fees and charges.  And of course the debt buyers usually purchase the claims for considerably less than their face value, so a settlement at 100% of the amount owed would give the debt buyers a windfall.  So all in all, what's the appropriate role of the judge in these cases?  To do justice?  But what's just?

Snake Oil Salesman Liable for $50 Million: Apparently Can't Cure Cancer

by Christopher L. Peterson

The Boston Herald reported today that a federal judge awarded the Federal Trade Commission nearly $50 million in damages in its case against Donald Barrett. Mr. Barrett is an infomercial pitchman who hawked his “Coral Calcium” and “Supreme Greens" dietary supplements on late night television.

The award comes nearly a year after the Federal Trade Commission won a summary judgment motion on the question of Mr. Barrett's and his co-defendant's liability. Among other counts, the district court agreed that Mr. Barrett's Coral Calcium infomercial made false representations that coral calcium is an effective treatment or cure for cancer, Parkinson’s disease, heart disease, and autoimmune diseases such as multiple sclerosis and lupus.

Still advertised and on the market: Mr. Barrett's "Hope^TM for Pets" dog food supplement which allegedly provides "Omega-3 fatty acids and phospholipids for healthy skin & hair coat." Any one want to bet whether he did a double blind, placebo-controlled, longitudinal dog study to back up that claim? Woof.

Bank of America Abandons Mandatory Arbitration

CNBC is reporting that Bank of America will no longer require that consumer disputes involving credit cards, among other matters, be resolved by arbitration. 

Andrew Serwin on Privacy Litigation

Andrew B. Serwin of Foley & Lardner LLP has written Poised on the Precipice: A Critical Examination of Privacy Litigation.  Here's the abstract:

A collection of factors has caused the United States to be poised on the precipice of a new wave of litigation - litigation arising from the improper use or collection of information. Public concern over privacy is ever increasing while, and some would say because, information has become critical to our everyday existence. In what is now a self-reinforcing cycle, increased public concern has caused an exponential increase in regulations, and the new regulations have caused increased attention and public concern because many of the new laws require public disclosure of security breaches, which increases societal concerns over privacy.

Security breach laws, the laws that mandate public disclosure of data incidents, provide the best example of the increase in regulation - Just a few short years ago California passed the first security breach law. Now, 43 other states, the City of New York, Washington, D.C., and Puerto Rico, have adopted laws and many other countries have either adopted, or are likely to adopt, security breach laws as well. Restrictions on the collection and use of Social Security number laws provide another such example as now more than 35 states have adopted these type of laws.

Whether the increasing public concern over privacy is caused by, or reflected in, the new privacy laws, the phenomenal expansion in the number of privacy laws will have a predictable effect - a geometric increase in the number of privacy laws will result in an equally geometric increase in the number of violations of privacy laws. As violations increase there is an equally predictable consequence - increased incentives for individuals to attempt to enforce these new rights.

One of the first challenges in privacy litigation is to define what "privacy" litigation actually is. While consumer-based privacy litigation gains much of the attention, to focus exclusively on consumer-oriented privacy litigation misses half the picture. The increase in value of information has increased the number of businesses that are bringing litigation to protect their intellectual capital and their networks. Though these claims are not thought of as "privacy" litigation in the traditional sense, these claims are no less about the improper use of information than actions brought by individuals. This litigation is frequently brought under the Computer Fraud and Abuse Act, the Electronic Communications Privacy Act, CAN-SPAM, the unfair competition law, including portions of the Lanham Act.

In the privacy realm, the Federal Trade Commission ("FTC") serves as the primary federal privacy enforcer. However, the FTC does not have unlimited resources, privacy is not its only responsibility, and the actual number of enforcement actions is not as high as one might guess. As a result, state attorney generals have an important role to play in privacy enforcement. However, with limited exceptions, state attorney generals have not brought a significant number of privacy matters. As a result, enforcement in many cases falls to private plaintiffs, and they play a role in enforcing privacy laws where violations are alleged to have occurred.

However, the road to plaintiffs' recovery in privacy litigation is littered with a number of issues that can derail a case before it truly starts, not the least of which is that plaintiffs in many cases cannot prove actual damage, and may actually lack standing to bring an action. Moreover, even if the case clears this hurdle, many class actions fail the certification requirements because of issues unique to privacy litigation.

This article examines the common theories of privacy litigation, the issues faced by plaintiffs, and examines class action issues generally, as well as some class issues that are unique to privacy litigation. While privacy cases have had mixed success, the increased importance of information, coupled with increased public attention, and the ever-increasing number of privacy laws guarantees that we will be stepping off of the precipice and into privacy litigation.

Times Story on Medical Information Privacy

Today's Times has an article, And You Thought a Prescription Was Private, about the sale of information about patients' use of prescriptions. The article also reports about how February's stimulus bill prohibits the sale of much personal health information.  The Center for Democracy and Technology has more.

Debtor's Prison in Indiana

Apparently in the southern counties of Indiana, judges are not in sympathy with our state constitution's ban on imprisonment for debt, which dates back to 1851.  Judgment debtors whose sole income is exempt Social Security, and whose assets fall below the state property exemptions, are summoned to court on show cause orders, and threatened with contempt if they refuse to make payment arrangements.  The Indiana Court of Appeals recently reversed one trial court's judgment ordering an indigent debtor to pay $25 monthly on an ordinary contract debt, or face prison.  HT to student Laura Harris who researched this practice while working at Indiana Legal Services.  Below the break I have reproduced the exchange between the trial judge and the consumer.